Ministry : Ministry of Finance (SEBI)

Obligations on CRAs while undertaking rating of financial instruments falling un

Subject : ministry of finance

Obligations on CRAs while undertaking rating of financial instruments falling under the purview of any other Financial Sector Regulator

The Securities and Exchange Board of India (SEBI) has issued a comprehensive circular prescribing clear operational, disclosure, and compliance requirements for Credit Rating Agencies (CRAs) when rating financial instruments regulated by other financial sector regulators—aimed at enhancing transparency, safeguarding investor interests, and demarcating regulatory boundaries.

Key Points

• CRAs must maintain separate email IDs and distinct web sections for grievances and disclosures related to SEBI-regulated activities versus those under other financial sector regulators (FSRs), effective 12 months from February 10, 2026.
• CRAs must ensure that their minimum net worth as mandated under SEBI’s CRA Regulations is not diluted by activities under other FSRs, and any additional net worth requirements from other regulators must be met over and above SEBI’s stipulations.
• All advertising, rating reports, and client engagement documents must clearly disclose which regulator governs each activity and explicitly state that SEBI’s investor protection and grievance redressal mechanisms are not available for non-SEBI regulated instruments.
• For both new and existing clients engaged in activities under other FSRs, CRAs must provide written disclosures and obtain written confirmation acknowledging the absence of SEBI protections, with existing clients to be notified within one year of the circular’s issuance.
• CRAs conducting activities under other regulators must submit a board-approved undertaking with their half-yearly internal audit reports confirming compliance with SEBI’s requirements.
• The circular’s provisions will be implemented in phases: most rules take effect 60 days after issuance (by April 11, 2026), while email and website segregation and client intimation for ongoing ratings will come into force after 12 months (by February 10, 2027).

Clearer Boundaries for Credit Rating Agencies Across Regulatory Jurisdictions

This circular marks a significant step by SEBI to bring structural clarity and accountability to CRAs operating across multiple regulatory domains. By mandating strict separation in disclosures, client communications, and internal reporting, SEBI aims to prevent regulatory arbitrage and ensure investors can distinguish between SEBI-protected and non-SEBI-regulated instruments. The phased implementation allows CRAs time to reconfigure systems, while the emphasis on board-level oversight through audit submissions underscores the seriousness of compliance. This move reflects a broader trend toward robust inter-regulatory coordination and stronger investor safeguards in India’s evolving financial landscape.